Mr S Monaghan v Resourcing People Ltd and Secretary of State for Business and Trade: 6007268/2024

EMPLOYMENT TRIBUNALS

Case No 6007268/2024

Between

Mr S MonaghanClaimant

Resourcing People Limited (1) Secretary of State for Business and Trade (2)Respondent

Before

Employment Judge Rakhim

Date 10 October 2024

JUDGMENT

[1]The claimant was not an employee or worker of the first respondent at the relevant time. The claim for redundancy is therefore dismissed because the Tribunal does not have jurisdiction to determine it. Employment Judge Rakhim 10 October 2024 30 January 2025 ……………………………. EMPLOYEE STATUS Background

[1]The Claimant’s case is that he commenced employment with the First Respondent on 1 December 2005 and had continuous service since. He says he worked as Director and this was for 40 hours per week. He says his employment ended 14 March 2024.

[2]The Claimant applied for early conciliation with ACAS on 24 July 2024 and the ACAS certificate was issued on 30 July 2024. This related to the Second Respondent.

[3]On 31 July 2024 the Claimant issued an ET1 claim for redundancy payment against both Respondents. He sought Redundancy Pay, Arrears of Wages, Holiday Pay and Compensatory Notice Pay. He effectively purses this payment from the National Insurance Fund.

[4]The Second Respondent filed an ET3 response form and grounds of resistance dated 14 August 2024.

[5]This matter came before me today, listed for 2 hours.

[6]The parties agreed the issue in dispute was whether the Claimant is an employee or not. This is the issue that is to be resolved. The Law

[7]Section 166 of the Employment Rights Act 1996 (‘ERA’) addresses applications of payments by the Secretary of State, and it states as follows: “(1)Where an employee claims that his employer is liable to pay to him an employer’s payment and either— (a)that the employee has taken all reasonable steps, other than legal proceedings, to recover the payment from the employer and the employer has refused or failed to pay it, or has paid part of it and has refused or failed to pay the balance, or (b)that the employer is insolvent and the whole or part of the payment remains unpaid, the employee may apply to the Secretary of State for a payment under this section.”

[8]Section 182 of ERA clarifies the requirement for the Secretary of State to make the payment, and that states: “If, on an application made to him in writing by an employee, the Secretary of State is satisfied that— (a)the employee’s employer has become insolvent, (b)the employee’s employment has been terminated, and (c)on the appropriate date the employee was entitled to be paid the whole or part of any debt to which this Part applies, the Secretary of State shall, subject to section 186, pay the employee out of the National Insurance Fund the amount to which, in the opinion of the Secretary of State, the employee is entitled in respect of the debt.”

[9]The definition of an employee is provided in Section 230 of ERA, which states as follows: “(1) In this Act “employee” means an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment. (2) In this Act “contract of employment” means a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing. (3) In this Act “worker” (except in the phrases “shop worker” and “betting worker”) means an individual who has entered into or works under (or, where the employment has ceased, worked under)—(a) a contract of employment, or

(b) any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual; and any reference to a worker’s contract shall be construed accordingly.”

[10]Employees are also defined in section 54 of the National Minimum Wage Act 1998 (NMW’), and this provides the very same definition as it is a replicate of the above.

[11]There was various case authorities relied upon by the Second Respondent. The Claimant confirmed he did not dispute any of the authorities or the legal principles that were summarised in the Grounds of Response with respect to the authorities. I start by summarising some of the relevant principles for me to consider: 11.1. It is a question of fact as to whether a shareholder/director is an employee, if the Claimant asserts that there is a contract then it is for him to prove it and there can come a time when the parties cease to conduct themselves in a way which is consistent with the contract - Secretary of State v Neufeld and Howe

[2009] EWCA Civ 280

. 11.2. The director of a company is normally an office holder, not an employee, and evidence is required to show the director was in fact “employed”, with relevant factors to include any express contract/agreement to employ and whether the person is under the control of the directors - Eaton v Robert Eaton Ltd & SOS – IRLR 83 [1988]. 11.3. It is a question of fact if the person is an employee, being a majority shareholder can be decisive and is always a relevant factor, but its significance depends on the circumstances and does not always imply that the person is not an employee - Fleming v SOS

[1997] IRLR 682

. 11.4. Consideration can be taken into account - State v Knight [2013]

UKEAT/0073/13/RN

11.5. When written contract terms are disputed then I should consider the actual legal obligations of the parties, consider all relevant evidence which includes the written terms read into the context, the conduct of the parties and their expectations of each other - Autoclenz Ltd v Belcher

[2011] ICR 1157

SC. 11.6. The essential requirements of a contract are; servant agrees for some consideration of wage/remuneration he will provide his work and skill to perform for the master, servant agrees (expressly or implied) that he will be subject to the master’s control in performing the service, and the other provisions of the contract are consistent with it being a contract of service. - Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance

[1968] 2 QB 497

, and then confirmed in Nethermere (St Neots) Ltd v Gardiner [1984] I.C.R 612 (at 623). Analysis

[12]I took into account the following: 12.1. Bundle – 146 pages (includes pleadings and documents) 12.2. Authorities bundle – 95 pages 12.3. Oral evidence of Claimant – he affirmed, provided some additional details, was then cross examined by Mr Soni, and I allowed him to then provide further details at the end. 12.4. Closing submissions – Mr Soni followed by the Claimant.

[13]No issue was raised by the Second Respondent on the Claimant’s credibility. I found the Claimant to be a credible witness. He was very forthright with his responses and was consistent with his documents. I accept he tried his best to assist me.

[14]There is a large volume of documentary evidence before the Tribunal, some of which is of no direct relevance to the issues that I must determine. Nonetheless, I have considered all of the evidence before the Tribunal extremely carefully and taken it all in the round.

[15]The Claimant says he is an employee as he had a contract of employment signed on 30 November 2005 and has been on the company payroll since.

[16]The Insolvency Service, acting for the Second Respondent, say the Claimant did not meet the threshold for employment status and the statutory definition is not met. It is denied that he had a contract of employment, express or implied, and the Second Respondent argues that the Claimant was engaged in a contract for services, not a contract of services.

[17]It is agreed that the First Respondent, a company, is insolvent and entered into administration on 14 March 2024. There is no dispute that the Claimant was a director and shareholder of the company. There is also no dispute that in principle the Claimant could additionally be an employee under a contract of employment.

[18]I remind myself it is for the Claimant to persuade me. I can only consider the evidence that is before me.

[19]I have considered the contract before me dated 30 November 2005 and considered the relevant terms. I did not consider it applies anymore because I bear in mind that this was a contract from nearly 19 years ago and was entered into for a specific purpose as detailed by the Claimant, namely mutual contracts were drawn up to get Mr Mott to join the company instilled with some confidence that both he and the Claimant would be tied to the company for a year.

[20]There was an inconsistency in saying the contract was drawn for M Mott to join as director, but the Claimant stated this was 2011 to 2014, so it did not explain the contract being dated much earlier in 2005. I also bear in mind that Mr Mott left in 2017, which is seven years ago. That contract no longer appears to have been effective.

[21]I also have considered the reality on the ground.

[22]I started by looking at the Wage/remuneration. The contract says £24,000 will be paid, which would be as an employee, but this was not the reality. The Claimant accepted that he always paid himself £2,000 per month, which is the contract amount. But he conceded in oral evidence that his £2,000 per month payment was a combination of a wage and dividends. Dividends are not wages and this is not an option open to an employee.

[23]The rate of pay asserted had not been paid. The P60 for 2021 showed annual wages of £8,760, the P60 for 20222 showed annual wages of £8,839.82, and the P60 for 2023 showed annual wages of £9,096. Therefore the contract amount of £24,000 per annum was not what is being paid in wages.

[24]The Claimant accepted this did not amount to him being paid the minimum wage. I did not need to calculate the amount to verify the effective hourly rate as it is clear that this is nowhere close to the minimum.

[25]The Claimant was paid £758 per month, but was unable to tell me when this level of wage started. This is the level of pay in the December 2023 to March 2024 payslips. The payslips prior to this were from December 2007 to January 2008, which is unhelpful given they are historic. It is for the Claimant to provide the relevant evidence. I did notice that nearly 17 years ago he was paid £1500 per month, but it was clear, and I find, that the Claimant had been paid £758 per month for a very long time.

[26]Despite the payslips, there was no evidence of this £758 per month being actually paid. The company bank statements were provided for March 2023 to March 2024 and it was undisputed that there was no identifiable wage there. Whilst I note the Claimant did not pay himself a wage from January 2024, there was a payslip for December 2023 and there was no evidence of that wage being paid.

[27]The Claimant says that the large payments seen on the statements to him were a combination of directors loan and wages that the company paid him, but there was no evidence of this before me. He says this would be mentioned on the reference, but there was a complete lack of evidence before me. On the other hand I note the other employee was being paid wages and that could be seen on the bank statements.

[28]I do take notice of the Claimant’s level of pay being below that which would attract national insurance and tax. I accept the Second Respondent’s submission on this, in that this arrangement does ensure the Claimant, who is a Director, can optimise his earnings in the most tax efficient way possible. An employee would not be able to avail themselves of such an option.

[29]I next considered the element of control. The Claimant accepted that he is 100% shareholder of the First Respondent throughout the company trading. The company documents show the Claimant was the director and 100% of the shareholder.

[30]The Claimant accepted in his questionnaire that he was not subject to supervision or guidance.I was not persuaded that he was subject to the disciplinary procedure by the company secretary as he had stated. His oral evidence of this was an example of a dispute between him and a fellow director (Mr Mott who was a director for three years) where they would defer to the company secretary for the casting vote. This was not evidence of subjecting oneself to any disciplinary procedure.

[31]Whilst I accept that there was a Non-Executive Director (‘NED’), as per the invoices of June and August 2021. The Claimant stated he was subject to some control by the NED, but there was no evidence of the period this NED was involved and I was not satisfied of any evidence of any control being exerted by that person (the NED) over the Claimant.

[32]I find the Claimant was in charge and in control, and I do not find he was subject to control or subordinate to anyone. Whilst he may well have got advice from his accountant, I find it was the Claimant who was the Director and 100% shareholder who made any decisions. It was clear that as Director he controlled and made the major decisions.

[33]I next considered other provisions of the contract. I started by looking at his holidays. The contract stated 37.5 hours per week, yet the Claimant says he always worked 60-70 hours per week. Even with his basic hours, without his overtime, he was not paid the minimum wage. An employee can be expected to work extra to complete the work when paid an annual salary, but the level of hours at approximately twice the contracted level, without remuneration, is not reflective of an employee status.

[34]There was additionally no evidence of the Claimant being paid any commission or bonus. I note he paid himself in dividends, but that can only relate to his role as a Director. This was a strong persuasive factor that leads me to conclude that the Claimant was not an employee.

[35]I also considered the status of annual leave. Employees would be entitled to holidays. The contract stated an allowance for annual leave of 24 days holiday and also bank holidays. There was no system in place for the Claimant to take annual leave or obtain approval for the,. He stated in his oral evidence that he informed the NED of when he would be away. Informing and seeking permission are not the same. It was also unclear as to what period the NED was involved. The evidence fell short of persuading me.

[36]The Claimant said he has not taken holidays for some years and referred to the difficulties from the onset of the pandemic, which is 4.5 years ago. I note he was acting in accordance with the contract, by not taking his annual leave, and he was also not getting any pay for the annual leave forfeited. There was no evidence of payment for untaken holidays.

[37]Being a majority shareholder can be decisive and the Claimant accepted he is the 100% shareholder of the First Respondent from when it was set up and remained so throughout. This is a significant factor. I have considered the other factors in the case and when looking at them in the round I am persuaded that they weigh in the Claimant’s favour. I do not find the Claimant to have been an employee.

[38]For all the above reasons, I deem the Claimant is not an employee as per the meaning given in section 230 or ERA or section 54 of NMW.

[39]I will thus issue an order stating as follows:• The claimant was not an employee or worker of the first respondent at the relevant time. The claim for redundancy is therefore dismissed because the Tribunal does not have jurisdiction to determine it.